Aerospace BizDev News from
Linda Wolstencroft
Newsletter #38 – August 15th, 2014
Revealing the Three Categories of Performance Risk
Linda Wolstencroft’s monthly Newsletter offers business leaders insights on business growth in complex situations.
Performance Risk is the risk associated with performing the business you are pursuing once you have captured it.
I find it useful to distinguish between three categories of performance risk:
1. Program (or Project) Risk – the risks associated with executing the program or project. These include risks associated with:
- Meeting schedule targets,
- Meeting cost targets,
- Creating and preserving positive customer, subcontractor and supplier relationships,
- Developing and maintaining positive team dynamics,
- Effective management of issues,
- Maintaining strong leadership, and/or,
- Effective use of business processes.
These elements are common to any successful business initiative.
2. Technical Risk – the risks associated with the specific technology involved.
These can include:
- Product development and design risk,
- Technology access risk (patents and protected Intellectual Property),
- Certification requirements risk,
- Risk associated with using new technology,
- Risk associated with supporting information technology platforms, and/or,
- Risk associated with executing technical processes.
These risk elements are specific to the technology being used.
3. Contractual Risk – the risks associated with contract terms and conditions, including:
- Liability and indemnity obligations,
- Penalties,
- Warranty,
- Termination, and/or,
- Delay.
These risk elements deal with obligations in the contract and typically involve legal implications.
You will notice that I don’t use a category called “pricing risk.” This is because every risk is a pricing risk. By defining the risk in each of the categories above, you will have defined your pricing risk. (For advice on how to consider risk when pricing, refer to last month’s newsletter - July 2014).
Each risk needs a mitigation plan (of course). Often when we review potential new business, we are good at identifying the risks, but don’t always develop the mitigation plans. These are important because by doing so we decrease our overall risk.
Risks that arise and blindside us are unwelcome and taking care to identify all risks and their mitigations is essential to successful business. The complex decisions we are dealing with are the decisions around how to mitigate the risk identified.
A practical solution is to maintain a risk log that identifies each risk and the mitigation plan for each; review it regularly.
This Newsletter has addressed the complex decision of Performance Risk. The decision on Performance Risk is one set of nine complex decisions that are required when developing the winning solution for a complex sale:
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